Most small businesses start as sole proprietorships or partnerships where business income flows directly to the income tax returns of the owners. Small business owners are required to report and pay taxes on business income as well as certain payroll taxes. A "payroll tax," or "employment tax," is a tax that employers pay to the government based on the wages earned by their employees.

Types of Payroll Taxes

Employers in the United States face several different payroll taxes at both the federal and state levels. The federal government and many state governments impose income taxes on employees, which requires employers to withhold a certain amount of income from employee pay for tax purposes. Income withheld by employers to pay for employee income tax liability is one type of payroll tax. Other payroll taxes include Social Security, Medicare and unemployment taxes.

Employee vs. Employer Contributions

Employees are responsible for paying 100 percent of their own federal and state income taxes. Tax withholding for employees simply serves as a way to ensure they pay their taxes in a timely manner. On the other hand, employers and employees share the burden of paying for Social Security and Medicare. According to the U.S. Social Security Administration, employers are required to contribute an amount equal to 6.2 percent of employee wages for Social Security and 1.45 percent for Medicare. Employees pay 4.2 percent for Social Security and 1.45 percent for Medicare. The tax on Social Security applies to the first $110,100 of income an employee earns.

Independent Contractors

Independent contractors hired by businesses are not considered employees. Instead, contractors are self-employed workers who hire out their services to perform specific tasks for clients and retain control over how they perform their work. Businesses that hire independent contractors are not responsible for contributing toward the payroll taxes of the contractors and do not have to withhold tax from contractor pay.

Considerations

The employee and employer contribution rates for payroll taxes can change over time. CNN reports that that a payroll tax cut is responsible for the 4.2 percent employee Social Security tax rate in 2012, and that the rate could go back up to 6.2 percent if the tax cut is not extended in the future. If the government decides to overhaul Social Security or Medicare, this also could result in different employer contribution rates.